In mid-April, Zheng Mian recovered 15,000 points and has steadily risen since then. Last week, futures prices hesitated below 16,000 points. After returning from the Labor Day holiday, the bulls once again exerted their strength, successfully reaching 16,000 points today and hitting a two-month high.
The National Development and Reform Commission issued relevant announcements on sliding tax quotas. What are the similarities and differences between this year and previous years? What impact will the worsening of the COVID-19 epidemic in India have on the domestic and foreign cotton markets? What are the domestic cotton supply and demand expectations for the new production season?
Reporter: The National Development and Reform Commission issued relevant announcements on sliding tax quotas. What are the similarities and differences between this year and previous years? What is the market impact?
[Xu Liang, Manager of the Agricultural Products Department of Shanghai East Asia Futures Research Institute]: The newly issued 700,000 tons of sliding tax quotas issued by the National Development and Reform Commission are within market expectations. The market once expected An additional 2 million tons of import quotas will be issued. The reason for issuing additional quotas is mainly due to concerns that downstream textile and apparel exports will be boycotted by some European and American countries against Xinjiang cotton to prevent downstream raw material shortages. At the same time, the additional issuance of quotas is also of positive significance to meet domestic supply. Because the epidemic caused some overseas orders to be transferred domestically, domestic textile and apparel exports increased significantly in the first quarter year-on-year, and the demand for raw materials was relatively strong. Even with the surge in imports last year, domestic commercial inventories were not stable. The lack of a new high is mainly due to the simultaneous improvement in demand. In previous years, the additional quota issuance was mainly based on tight domestic supply and demand, and increased imports eased the pressure on domestic demand. The impact of this year’s additional quota issuance on the market has already been digested by the market, and its impact on the later market is relatively limited; the additional issuance of import quotas will benefit U.S. cotton to a certain extent, and the rise in U.S. cotton may drive domestic prices to follow from the cost side. Generally speaking, the issuance of additional quotas will increase domestic supply and loosen the relationship between domestic supply and demand. However, increased domestic imports will support international cotton prices, which will in turn affect domestic cotton prices; therefore, there are both good and bad news. What determines the price depends more on the later demand. Whether it will continue to improve, only if demand continues to improve can we continue to digest the negative effects of additional quota issuances.
[He Meng, Huaan Futures Agricultural Products Analyst]: This increase in import quotas is basically within market expectations. Compared with previous years, the biggest difference is that the trading method is more flexible, with 700,000 tons. Of the quantity, 400,000 tons are limited to imports through processing trade, and 300,000 tons are not limited to trade. Enterprises applying for quotas can choose according to their business needs. Affected by the restricted use of cotton in Xinjiang, this additional issuance of quotas will help textile companies receive external orders and reduce procurement costs. However, in the second and third quarters, the inventory of imported cotton at my country’s ports is expected to be high, and the current downstream textile companies have insufficient motivation to restock. Therefore, the impact of additional quota issuance on the market must be considered based on subsequent orders, as well as the price difference between domestic and foreign cotton and other factors.
[CITIC Futures Wu Xinyang]: (1) The previous market expectation for this year’s sliding tax quota was: to issue 2 million tons of imported cotton quota, of which 600,000 tons According to the state-owned trade quota, 700,000 tons are limited to imports through processing trade, and 700,000 tons are not limited to trade. It seems that the actual number of 700,000 tons officially announced this time is lower than expected, which is good for the short-term market. (2) my country began to issue additional cotton import sliding tax quotas in 2018. The quota amount was 800,000 tons in 2018 and 2019, 400,000 tons in 2020, and the latest announced quota in 2021 is 700,000 tons. In 2018 and 2019, they will be unified as non-state-owned trade quotas, and the application and allocation of sliding tax quotas issued will not distinguish between general trade and processing trade, and enterprises can independently choose and determine the trade method. Restrictions on non-state trade quotas will begin in 2020, requiring them to be limited to imports through processing trade. (3) The application time for this distribution is similar to previous years.
Reporter: What impact has the worsening of the COVID-19 epidemic in India had on the domestic and foreign cotton markets?
[Xu Liang, Manager of Agricultural Products Department of Shanghai East Asia Futures Research Institute]: As the epidemic in India worsens, we think the impact will not be great. The epidemic in India has increased significantly from a statistical perspective. It may be more based on changes in statistical data. It is difficult for the actual number of people to change dozens of times in just one or two months. The epidemic in India will definitely have a certain adverse impact on India’s own orders and demand; India itself is a cotton exporter, and from an export perspective, there is also cotton from the United States and Brazil. India’s short-term export reduction will not affect global supply and demand. From a demand perspective, whether some textile and apparel orders in India will be transferred on a large scale. Judging from the current domestic downstream feedback, there has not yet been a large-scale transfer of Indian orders, which has no actual impact on domestic order demand.
[He Meng, Huaan Futures Agricultural Products Analyst]: India is the world’s largest cotton producer and the second largest consumer. As the epidemic continues to ferment, in order to prevent the epidemic, Some local textile companies have chosen to stop production, causing some orders to return to other Southeast Asian countries. The orders returned to China are mainly for mid- to low-end products such as home textiles and bedding. However, due to low profits and large uncertainties, the textile industry Enterprises are cautious in taking orders, and the impact on domestic cotton spinning consumption is limited. For foreign cotton markets, the pace of Indian cotton exports has slowed down due to regional blockades and logistics, resulting in a slight decline in global cotton supply, which is conducive to US cotton, Brazilian cotton, etc. seizing the market and boosting international cotton prices.
[CITIC Futures Wu Xinyang]: Currently, with the severe epidemic situation in India, the loss of workers in textile companies and the curfew policy have also reduced the operating rate. As one of the few countries in the world with a relatively complete textile manufacturing industry chain, India is the world’s second largest cotton producer and the second largest chemical fiber producer. Its spinning production capacity accounts for about 22% of the world’s, and its textile and clothing exports rank first in the world. Second and third place. Looking back on September and October last year, as the COVID-19 epidemic in India continued to expand, many textile industry orders were transferred to China, creating conditions for the destocking of China’s textile industry chain and boosting a wave of rising prices for Zheng cotton.
Reporter: What are the expectations for domestic cotton supply and demand in the new production season, and how will the market develop in the future?
[Xu Liang, Manager of the Agricultural Products Department of Shanghai East Asia Futures Research Institute]: Domestic cotton supply has stabilized in the new year, and the overall cotton area in Xinjiang has stabilized, and may increase slightly, mainly based on the state’s support for Xinjiang. Cotton subsidies, regardless of possible unfavorable weather in the later period, domestic supply is relatively stable. In the later period, the market price will pay more attention to the changes on the demand side. On the one hand, the gradual liberalization of Europe and the United States will increase new demand. Europe and the United States are the largest places for domestic textile and clothing exports, and have a relatively large impact on domestic demand. The supply side mainly continues to pay attention to the current sowing and weather of US cotton. Drought in some areas of Texas has triggered market concerns about production cuts. May-July is also the weather speculation cycle for US cotton. Therefore, in the later period, we believe that the price is still bullish, and the price will remain volatile and upward.
[He Meng, Huaan Futures Agricultural Products Analyst]: A survey released by the China Cotton Association at the end of March showed that the domestic cotton sown area dropped by 5% year-on-year this year. Among them, Xinjiang region is due to limited water resources. This leaves little room for growth in sown area. In late April, the entire Xinjiang region encountered severe weather including strong winds, cooling and precipitation, and some cotton fields that suffered frost damage needed to be replanted. Compared with previous years, the growth progress of cotton seedlings is currently slower. If the weather is normal in the later period, the cotton growth is expected to catch up with last year, and the supply will be comparable to last year. than or slightly down. The problem of limited use of Xinjiang cotton is difficult to solve in the short term. Therefore, Xinjiang cotton may flow into the state reserve or be sold domestically. From an export perspective, foreign trade companies will use a large amount of imported cotton to complete foreign orders, which will have a negative impact on the use of domestic cotton. . Although the epidemic situation in India, Japan and other countries has rebounded sharply recently, with the vaccination, the global epidemic situation will be significantly improved compared to last year, and consumption in the cotton spinning industry will continue to recover, providing strong support for cotton prices. However, it is currently the cotton growing season in the northern hemisphere, and investors should still focus on the weather in China and the United States.
[CITIC Futures Wu Xinyang]: The contradiction between domestic supply and demand is not prominent. Output is stabilizing: Xinjiang cotton planting will be stable, and the weather is not worth the premium for the time being; Import concentration: Under the influence of the Xinjiang cotton ban and the policy of purchasing agricultural products from the United States, the demand for foreign cotton from the state reserves and industries has increased, and the import volume has a tendency to expand. . The demand side is optimistic given the main tone of global epidemic recovery.
The international cotton market, dominated by U.S. cotton, is facing two major difficulties, which will further shrink cotton production in the next year: Global Grain-Cotton Ratio Maintaining high levels, weather factors in various cotton areas are not conducive to cotton growth and planting. Recently, with the epidemic in major Southeast Asian textile countries such as India and Bangladesh getting out of control, orders may flow to major textile countries that have effectively prevented and controlled the epidemic, such as China, Vietnam and Turkey. These are also major exporters of U.S. cotton, and the demand for U.S. cotton is optimistic. U.S. cotton, whose supply and demand are tightening, will also remain at a high level, driving up domestic cotton prices. </p
